(Reuters) - U.S. property and casualty insurer Alleghany Corp (Y.N) said it would buy reinsurer Transatlantic Holdings (TRH.N) for $3.4 billion in cash and stock, possibly putting an end to the months-long buyout battle for the reinsurer.

The Alleghany offer values the reinsurer at nearly $5 more per share than Validus Holdings Ltd's (VR.N) latest offer, which may help Transatlantic ward off Validus' hostile takeover pitch.

Transatlantic, formerly controlled by insurer AIG (AIG.N), was also courted by Allied World Holding (AWH.N), National Indemnity, a unit of Warren Buffet's Berkshire Hathaway (BRKa.N) among other suitors.

In June, Transatlantic had agreed to merge with Allied World, but the deal was called off in the face of competing offers and opposition from its largest shareholder Davis Selected Advisors.

Under the terms, Transatlantic shareholders will receive $14.22 in cash and 0.145 Alleghany shares for each share, for a total value of $59.79 per share.

The price is at a premium of about 10 percent over Transatlantic's Friday close of $54.43 on the New York Stock Exchange.

Alleghany was expected to pay $59-$60 per share in cash and stock for Transatlantic, a source had told Reuters on Sunday.

The Alleghany offer has the approval of Davis Selected Advisors, which owns nearly a quarter of Transatlantic.

Alleghany said Joseph Brandon, former chief executive of Berkshire Hathaway's General Re Corp, would join the company. Reuters had earlier reported that Brandon was working with Morgan Stanley (MS.N) on a possible bid for Transatlantic.

Transatlantic is one of the cheapest companies in the industry and trades at a 20 percent discount to its book value compared to its peers, according to Thomson Reuters Starmine.

The company's long-tail insurance lines -- such as medical malpractice and workers' compensation -- are attractive to rivals more exposed to short-tail risks such as hurricane damage.

Alleghany said the acquisition would immediately add to its book value andearnings per share and bolster its capital base.

Transatlantic's deal with Alleghany will also mean a mini-payday for former suitor Allied World. When their deal was called-off, Transatlantic said it would pay Allied $66.7 million, in addition to break-up fees, if it entered into another deal within a year.

Shares of Transatlantic were up nearly 4 percent in pre-market trade. They closed at $54.43 Friday on the New York Stock Exchange.

(Reporting by Tanya Agrawal and Jochelle Mendonca in Bangalore; Editing by Supriya Kurane)

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